Many companies and organizations are continuing to look for ways to reduce their internal cost of operations and overhead. Implementing LEAN manufacturing principles has become a very important concept and one that may help improve overall efficiency of operations, directly impacting bottom line results. This blog is written for those organizations.

09/11/2014

August Manufacturing Numbers Solid. Show Strong Mid-Year Growth

On September 4, 2014, the PNC Financial Services Group reported that the ISM manufacturing index jumped 2.1 points to 59 percent in August; a reading of above 50 indicates expansion in manufacturing. The index increased for the second straight month, and for the sixth time in seven months. This was the best reading for the ISM index since March 2011.

The details of the report were good. All five of the components used to calculate the overall index were above 50 in August, and three of the five rose over the month. The production and new orders components were especially strong. Production jumped 3.3 points to 64.5 percent, its highest level since early 2010. And the new orders index rose 4.3 points to 66.7 percent, its best performance in more than a decade; this bodes very well for near-term growth. The employment index dipped slightly to 58.1 percent from 58.2 percent in July, but this was still the second-best result since the spring of 2011. This supports PNC’s call for the net addition of 30,000 manufacturing jobs when the Bureau of Labor Statistics releases the August employment report on Friday morning.

The results from the components not used to calculate the overall index were also positive. In particular, orders backlogs were growing in August, after they were shrinking in July, suggesting production will continue to improve in the near term. All but one of the eighteen industries covered reported expansion in August, with biggest gains in plastics and rubber, furniture and related products, and fabricated metals. The only industry reporting contraction in August was textile mills. Orders for manufactured goods increased 10.5 percent in July, after increasing 1.5 percent in June (revised up from 1.1 percent). This was the largest increase in the history of the series, which goes back to 1992. Orders have risen in five of the past six months.

The details were not as good. There was a greater than threefold increase in orders for civilian aircraft because of a big jump in orders for Boeing. But outside of transportation goods orders fell 0.8 percent. Core capital goods orders—nondefense capital goods, excluding aircraft—were down 0.7 percent in July, revised down from a 0.5 percent decline.

Shipments of manufactured goods rose 1.2 percent in July, after increasing 0.8 percent in June. Core capital goods shipments were up 1.4 percent for the month, and have been steadily increasing throughout 2014 as business investment has picked up after the difficult winter. The increase in inventories was modest in July, and the inventory-toshipments ratio declined, which will drive further production in the near term. Manufacturing has rebounded after some weakness in early 2014 because of the bad weather. Production, demand and employment are improving, and there is no indication that inventories are getting ahead of sales.

Businesses and consumers are both increasing their purchases of manufactured goods in 2014; this, in turn, is leading to job growth in the industry. Manufacturing will continue to improve into 2015, supporting growth in the broader economy.